Principles of Taxation

Chapter 6

Canons of Taxation

Canons of taxation were originally laid down by economist Adam Smith in his famouse book "The Wealth of Nations". A good tax system is one which is designed on the basis of an appropriate set of principles (rules).

The four main canons of taxation as postilated by Adam Smith are

  • Equality
This states that a person should be taxed according to their ability to pay taxes.
  • Certainity
The time of payment, the manner of payment and the amount to be paid should be clear to every tax payer and not arbitrary.
  • Convenience
The mode and timings of tax payment should be convenient to the tax payer. It means that the taxes should be imposed in such a manner and at the time which is most convenient for the tax payer.
  • Economy / efficiency
Every tax has a cost of collection. The canon of economy implies that the cost of tax collection should be minimum.

Additional Canons

With the passage of time more canons were developed to better suite the changing industrial age. These additional five (5) canons are;

  1. Productivity

  2. Simplicity

  3. Diversity

  4. Elasticity

  5. Flexible

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